A Chinese investor in front of a screen displaying share prices in Huaibei city. Around 80% of the country’s investors are individuals who have borrowed money from brokers.
Photograph: Imaginechina/Corbis

China’s stock markets have bounced back, restoring some calm to markets after days of panic selling.

The CSI 300 index of the biggest listed companies in Shanghai and Shenzhen gained 6.4% on Thursday, but investors remained nervous. The Shanghai Composite rose 5.8%, the biggest daily percentage gain in six years. Hong Kong’s stock market also rebounded, finishing 3.7% higher. On Wednesday, the Hang Seng dropped 5.8%, its biggest one-day percentage fall since the financial crisis in 2008, as panic spread from China.

It remains to be seen whether this is a temporary reprieve or the start of a stabilisation.

The bounceback in China boosted global oil prices, with Brent crude up 66 cents at $57.72 (£37.52) a barrel, a 1.2% rise; and New York crude rising 90 cents to $52.55 a barrel, a 1.7% gain.

China bans major shareholders from selling their stakes for next six months

Read more

Police and regulators are investigating evidence of potential “malicious” short selling of Chinese shares, state news agency Xinhua reported. The vice-minister of public security, Meng Qingfeng and a team of officials visited the office of the security regulator on Thursday morning, a sign the authorities will severely punish operations that violate laws and regulations.

China’s banking regulator said it would allow banks to extend mortgages that have used shares as collateral. The central bank also announced it was injecting 35bn yuan into the markets. It is the fifth cash injection the People’s Bank of China has carried out since 25 June.

Some analysts believe the government’s measures are starting to have an impact. “It looks like the government plan is quite successful, that the market is again back to having ample liquidity,” said Jiahe Chen, chief strategist at Cinda Securities.

But others said it was too early to tell whether the stock market rout is over, noting that about half of all China-listed firms have stopped trading.

China’s mainland stocks have lost more than a quarter of their value since reaching a peak on 12 June, in the biggest slide since the global financial crisis in 2008. Some $4tn has been wiped off the stock market value of companies, forcing Chinese regulators to take unprecedented measures to stabilise markets.

CSI 300 index. Photograph: Thomson Reuters

Economists at Credit Suisse said: “We are inclined to believe that Beijing will escalate policy responses until they start working. If market conditions do not stabilise, we expect a statement of ‘whatever it takes’ from the Chinese government, given that social stability is at stake and financial systemic risks are evident.”

China’s government, central bank and regulators have been pulling out all the stops to prop up share prices – including a freeze on new stock market listings and cutting interest rates to new record lows. The country’s top brokerages vowed to buy billions of dollars worth of shares last weekend. But the measures appeared to have little effect in the first three days of this week, with the sell-off continuing.

The US administration has expressed concerns the stock market crash could delay Beijing’s economic reforms. There are mounting warnings the Chinese stock market rout poses a bigger risk to the global financial system than the Greek debt crisis.

Nigel Green, the founder and chief executive of financial consultancy deVere Group, said: “With the Chinese stock market losing a third of its value since mid-June, which is about equivalent to the UK’s entire economic output last year, this has all the makings of morphing into a major financial crisis.

“Despite few foreign investors having much exposure to the Chinese stock markets, the meltdown matters. Indeed, it is hugely significant because it will send shockwaves throughout global capital markets, not least because China is the world’s second-largest economy and one of the largest consumers of commodities and other goods sold by other countries. As such, China, not Greece, is arguably the main cause for concern for investors right now.”

Australian financial services firm AMP lambasted Chinese regulators for contributing to the panic sell-off – the first time a foreign investor has publicly criticised Beijing’s intervention in its markets. The firm’s AMP Capital China Growth Fund, the biggest Australian fund that invests exclusively in China shares, has seen its market value shrink by A$272m to A$440m.

However, Chen believes it is important the government is taking some action. The worst thing for a financial market “is not the fluctuation of price, but overall lacking of confidence and liquidity. It needs government action to reverse this kind of situation as it is not a normal situation that can be corrected by the market itself,” he said.

In China, some 80% of investors are individuals, many of whom have borrowed from a broker to play the stock market.

The past six months have seen a record number of businesses listed on the Shanghai and Shenzhen exchanges, and an explosion in margin trading. This means a broker can ask for more cash or other collateral if the price of securities falls, which is known as a margin call. As regulators have cracked down on margin trading, falling share prices have triggered margin calls – forcing investors to offload assets to come up with the cash.

HSBC cut its growth outlook for this year for Asia excluding Japan to 6.3% from 6.5%. “Things aren’t exactly going according to plan,” the bank said on Wednesday. “Asia’s export malaise is not just a temporary blip, but reflects longer-lasting structural factors, with a trade rebound unlikely.”